PETALING JAYA: The buying frenzy on Bursa Malaysia went into overdrive, as the number of shares traded smashed the recent high of 9.59 billion units with 11.21 billion shares crossing hands yesterday.
Shares worth RM4.41bil were traded with the focus on oil and gas (O&G) stocks, adding a new element to punter interest with gainers outnumbering losers by two times despite continual warnings by analysts that the markets are overvalued.
Much of the day’s trading was focused on the underlying small-cap counters, particularly the O&G stocks, said RHB Research head Alexander Chia. “The markets are very frothy - trading yesterday saw a new record volume and we are in a situation where retailers have come back into the market, ” Chia told StarBiz.
Smaller-capitalised O&G stocks, with many in financial difficulty after the collapse in oil prices and cut in production, were the most actively traded stocks, recovering from their lows following the continued recovery in oil prices in the international markets.
“The FBM KLCI, which comprises large-capitalised stocks, is trading at 15.7 times to 15.8 times forward earnings and this is back to the mean forward price to earnings valuations that we have seen over the last seven years, ” Chia said.
“For large-caps to be at this level of the market is probably close to being very fully valued, while interest has been very much focused on the smaller-capitalised names. We have also seen a rotational play through the different sectors of the market. For example, the glove makers are still going up, ” he added.
He said while the market’s focus was on O&G stocks yesterday, plantation stocks were also a beneficiary from the higher oil prices since there is a close correlation between the two commodities. But rotational play was on display as O&G stocks dominated the top active list, charting steep percentage gains, especially among the lower liners.
Among the most active stocks were Icon Offshore Bhd, which jumped 66% or five sen to 12.5 sen. Velesto Energy Bhd climbed 21% to 17 sen, Bumi Armada Bhd added 33% to 26 sen and Sapura Energy Bhd rose 11% to 10 sen. Icon Offshore jumped following the company’s announcement that it had returned to the black in the first quarter ended March 31.
Lifting the prospects of O&G stocks was the price of crude oil, which has now climbed significantly off its lows. The Brent crude oil futures for July 2020 delivery saw prices rising by 3.69% as at press time to US$33.70 per barrel.
It was not all just penny stocks and concept plays, however. Shares of the stock exchange itself, Bursa Malaysia Bhd, was the top gainer with a 13% rise in its price to RM7.50, as it benefited from the huge jump in trading volume seen in the market of late.
The ringgit had weakened 0.45% to RM4.3705 to the US dollar as at press time.
The benchmark FBM KLCI tempered its gains by the end of the day to close slightly higher by 0.48% or 6.72 points to 1,410.16.
The rest of the markets in Asia were mostly higher, with US equity futures pointing to a broadly higher triple-digit open as at press time.
In Asia, Singapore’s Straits Times Index added 0.75% to 2,542.44 and Hong Kong’s Hang Seng Index climbed 0.58% to 23,934.77 points, while Japan’s Nikkei 225 rose 0.48% to 20,133.73.
Morgan Stanley Investment Management head of applied equity advisers Andrew Slimmon said that he is expecting some further upside to the market capitalisation in the near term. “I do not expect a retest of the lows. The stock market reacts most violently to unexpected bad news. Any re-outbreak of the virus is more or less anticipated, and therefore, will not cause the damage to the stock market that it did initially when we knew nothing about Covid-19, ” Slimmon said in his market commentary.
“I expect there will be bad days for the market if a state (in the US) extends its stay-at-home order and good days when more states reopen. My advice is to not let your emotions about the virus impact your investment position. Do not sell in the weakness or buy in the strength, ” Slimmon said in his market commentary.
Chia expects that market interest in the near term would be focused on the high-beta names in the small-cap stock space. “The bigger-capitalised stocks are not that cheap anymore and the small-cap index has underperformed the FBM KLCI in the year-to-date period. And valuations have crept up from the end of last year and were almost reaching parity before the broad pullback in the market during the first quarter of this year, ” he said.
He said that the likely issues locally that presented new market risks could be in the political scene. “The market is very bad at pricing in the political risk as it has a binary outcome: either a bad political outcome or the outcome is positive and there is no in-between. However, political risk is something we cannot run away from, ” he added.
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